Minimum Premium
The lowest possible premium a carrier will charge for a workers compensation policy, regardless of the insured's payroll or classification rate.
What It Is
Minimum premium is the lowest premium amount that a workers compensation insurer will charge for a policy, regardless of the premium that would be produced by the standard calculation (payroll x rate x EMR). Every workers comp policy has a minimum premium established by the carrier, which varies by state and carrier but typically ranges from $750 to $2,500.
The minimum premium exists because there is a fixed cost to issuing and servicing any workers comp policy — underwriting, policy issuance, claims administration, audit, and regulatory compliance — that the carrier must cover regardless of the account size. The minimum premium ensures the carrier does not lose money on the policy's administrative costs.
Minimum premium most commonly applies to very small accounts — sole proprietors, one- or two-person operations, and businesses with minimal payroll. It is the premium charged on ghost policies where the calculated premium based on payroll would be near zero.
Why It Matters for Brokers
Brokers must understand minimum premium because it sets the floor for workers comp pricing on small accounts. A sole proprietor or small LLC seeking workers comp will pay the minimum premium regardless of their actual payroll. For ghost policies, the minimum premium is the entire cost. Brokers should disclose the minimum premium at the quoting stage so small clients understand they are paying a fixed cost, not a variable rate based on payroll.
Real-World Example
A freelance carpenter who works as a sole proprietor needs a workers comp policy to qualify for subcontracts. The state minimum premium is $1,100. If the calculated premium based on the carpenter's $40,000 estimated payroll and class code rate of $5.50 per $100 would be $2,200, the carpenter pays $2,200. But if the carpenter excludes himself from the policy (ghost policy) and the calculated premium is $0, the carrier charges the $1,100 minimum premium. If the carpenter hires a helper mid-year at $15,000 payroll, the audit will produce additional premium of $825 ($15,000 x $5.50 / $100), bringing the total policy cost to $1,925.
Common Mistakes
- 1Not disclosing the minimum premium to small clients at the quoting stage, creating surprise when the premium exceeds what the payroll-based calculation would suggest.
- 2Assuming minimum premiums are the same across all carriers and states when they vary significantly.
- 3Forgetting that the minimum premium applies at audit as well — if actual payroll produces a premium below the minimum, the minimum still applies.
How brokerageaudit.com Handles This
Policy Checker identifies minimum premium policies and displays the minimum premium threshold alongside the standard calculated premium. Submission Intake includes minimum premium information in workers comp quotes for small accounts to ensure transparent pricing. It also flags ghost policies where the minimum premium is the primary cost driver.